What the American bailout of First Republic Bank teaches Europe

Unlike the panic that broke out on the markets in early March with the collapse of the SVB, the reaction to the bankruptcy of the First Republic, the fourteenth in America by size, has tried to be more composed. If Wall Street got nervous yesterday it seemed more due to the sovereign default threat made by Secretary of State Janet Yellen, on the issue of the debt ceiling and on fears of contagion of the global banking system. The reaction capacity shown by the American government, which facilitated the rescue of an institution in crisis by a private group like Jp Morgan like never before (in other times the acquisition of 100 billion deposits would have been prohibited for competition reasons), was surprising. President Joe Biden said all First Republic depositors and businesses will be protected and investors will lose instead. He added that he has asked Congress to tighten the supervisory rules thus giving the impression that the deregulation phase has ended and that he is working to restore confidence. And the CEO of Jp Morgan, Jamie Dimon, while admitting that he does not have a crystal ball, assured that the US credit system “is stable” and that this chapter, except perhaps one other small bank that will need help, can be considered closed. And in Europe? Mediobanca’s research office said it viewed the ongoing crisis in US regional banks as a combination of 2018 deregulation and sharp interest rate hikes, but nonetheless as a “localized problem.” Mediobanca explains that unlike previous banking crises, after a solid health check on liquidity and risks, it “has not identified some obvious vulnerabilities in EU banks”. According to another investment company, Algebris, the US administration is the most favorable solution for the market among the available options. “Depositors will be compensated and assets will be transferred to a large bank. Deposit guarantee is expected to support systemic stability, meaning that lending will continue to slow, even if banking stress is unlikely to rebound.